To avoid probate, you may have heard it said that you should establish a Trust. You may also have heard that there are other methods to avoid probate. Let’s take a closer look at the three most popular options.
Use a TOD/POD on a Financial Account
A TOD stands for Transfer on Death. POD stands for Payable on Death. Although POD and TOD may be used by different institutions, they both mean the exact same thing. This is an agreement between you and your bank to transfer an account or beneficiary to you upon your death. A POD account or TOD account has the advantage of not having to go through probate. The TOD beneficiary, however, does not own any ownership rights in the account, unlike a joint tenant relationship. That sounds pretty great, right?
A TOD account has limited flexibility. This is the main problem. You can name a primary beneficiary or a secondary beneficiary. Most people find this insufficient. This does not allow for any other division. The TOD wouldn’t work if you wanted 75% for your children and 25% for your grandchildren. This is the second problem with a TOD. The beneficiary of a TOD has full control over the assets. You may trust your spouse or adult children to manage the account well, but you might have different feelings about a younger person. You create the worst scenario possible if you name a minor beneficiary. These assets will be subject to guardianship proceedings with the probate judge. If you named your grandchild, aged 10, as a beneficiary of your TOD, the money would be blocked from your child (his parents).
A TOD doesn’t address your final affairs. Who will pay your income taxes and other recurring bills if you owe them? This will cause chaos among beneficiaries. Instead, a Trust trustee could use your assets for final bills and funeral expenses, then distribute the rest to your beneficiaries.
This article was written by Alla Tenina. Alla is the best bankruptcy attorney Los Angeles California, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
